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TOKYO, Aug 16 (Reuters) The dollar stayed under pressure on Wednesday ahead of data on U.S. consumer price inflation that should help investors decide whether the Federal Reserve will keep interest rates on hold again next month.

The U.S. currency fell sharply on Tuesday on news that the core producer price index slipped 0.3 percent in July, declining unexpectedly for the first time since October and suggesting the Fed may not need to raise rates further to combat inflation.

''The market wasn't positioned for that sort of figure,'' said Luke Waddington, head of forex trading at Royal Bank of Scotland in Tokyo.

''Figures are having a much bigger impact in the market at the moment because we don't have any defined direction.'' Adding to the dollar's woes, a separate survey from the New York Federal Reserve showed manufacturing activity in August slowed to its weakest since June 2005.

The Fed left rates on hold at 5.25 percent last week after bumping them up 17 straight times since June 2004, though it left the door ajar for more credit tightening if price pressures persist.

Federal funds futures on Tuesday implied that the market was seeing a 36 percent chance that the Federal Reserve Board will raise rates again at its next meeting on Sept. 20, down from a 42 percent chance just before the data.

''The main theme of the market is still the interest rate and monetary polices conducted by the FRB and whether we'll be seeing an additional rate hike in September,'' said Kikuko Takeda, a currency strategist at Bank of Tokyo-Mitsubishi UFJ.

For a clearer picture of the outlook for U.S. rates, the market has turned its attention to the report on consumer price inflation in July due at 1230 GMT.

The core consumer price index likely climbed 0.3 percent from a month earlier, matching June's rise, according to the median forecast in a Reuters poll of economists.

By 0225 GMT the dollar was little changed at 116.10 yen after falling half a percent a day earlier.

Redemptions of coupon payments in U.S. Treasuries were helping to support the yen as Japanese investors repatriated their windfalls into the currency from dollars.

The euro was also little changed at $1.2785 after climbing 0.5 percent in the previous session.

The single European currency was flat at 148.45 yen in sight of the record high of 148.62 yen touched on electronic trading platform EBS on Tuesday.

The yen has repeatedly plumbed new lows against the euro amid signs that the Bank of Japan is in no hurry to raise rates again after making the first rise in six years last month, while the European Central Bank is expected to keep tightening credit.

REUTERS SKU ND1016